2011: Tech Spending Finally Goes Up

Morningstar is offering a free mobile application for evaluating mutual funds that runs on Android smartphones. Dreyfus is giving iPads to every one of its 70 salespeople, across three divisions, to help market mutual funds. R.R. Donnelley submitted the first mutual fund filing, for Russell Investments, that works live on the Web through the eXtensible Business Reporting Language. And, oh, yeah, the first phase of the new Internal Revenue Service regulations on cost-basis reporting went into effect Saturday.

Welcome to 2011, the year when mutual fund and other financial services firms are expected to increase their spending on digital applications, devices and infrastructure. For many firms, this will be the first time since 2007 that spending will grow.

Worldwide spending on information technology for financial markets will pick up 4.5% in 2011, after growing just 0.3% this year, according to Ovum, a research firm based in London. This contrasts with growth of 3.16% this year recorded by Gartner and growth of 3.54% it predicts for next year, in enterprises of all types.

But what is likely to drive much of the growth for fund firms is new regulation, of various sorts. This ranges from the cost-basis requirements of the IRS to the XBRL versions of risk-return summaries mandated by the Securities and Exchange Commission to the transparency requirements of the Dodd-Frank Wall Street Reform Act that likely will keep middle and back offices busy.

A more moderate view on spending in 2011 is held by Computer Economics, based in Irvine, Calif.

Its fourth quarter survey indicates that chief information officers and other high-level technology executives are forecasting that their operational spending next year will only increase by about 2%.

That means half of the 136 organizations surveyed will increase spending more, and half will grow spending at less than that rate or cut it. The 136 firms are in the U.S. and Canada.

The 2% gain comes after two years of no change at the median, accompanied by substantial budget cuts by one-fourth of organizations. The increase also is modest in comparison to the three years leading up to the global recession induced by the financial markets crisis, Computer Economics said.

In 2006, operational spending grew 4.1%. In 2007, 5.0%. In 2008, 4.0%. Since then, it's been flat. Until, it projects, next year.

IT organizations have been extending staff hours, adding temporary workers, and launching "major projects" that promise strong returns or benefits, the survey found.

"After two years of flat budgets, any increase in IT spending is welcome news. I also like what I see in the growth in new project work and extended work hours" said Frank Scavo, president of Computer Economics. "At some point, hopefully by mid-year in 2011, these trends have to result in increased hiring for IT professionals."

But the firm's head of research, John Longwell, says it's too early to get too excited. He calls the growth in operational spending "modest."

"Spending is coming back in the operational budgets," he told Money Management Executive. "But there is not a big upgrade in capital budgets."

Attracting a good bit of the spending are upgrades to existing systems, he said. Particularly of interest: enterprise resource planning systems and customer relationship management systems.

There are also some other fundamental, unflashy upgrades taking place. Most notable: the adoption, finally, of a new version of the Windows operating system from Microsoft, on desktop computers. "Vista just never got off the ground," Long-well said. "Windows 7 has gotten off the ground, and there's plenty of activity and that's going to continue into 2011."

Roughly one-third of corporations are starting to migrate to Windows 7, he said.

Also attracting increased spending is "software as a service,'' he said. This is where applications that used to reside on servers and desktop computers inside a company's computer network are inside hosted remotely. Thirty-six percent of companies had some sore of SaaS in place in 2010, up from 24% last year. And the "penetration can be bigger," Longwell said, but in terms of the number of companies adopting such services and the number of applications employed by a given company in this fashion.

Another focus: "virtualization" of desktop computers. This is where the use of software such as VMWare ascribes a certain amount of computing power from a central source to a user at any location. The functioning of the terminal is the same as a desktop computer, but the computing is not done at the desk.

Roughly 29% of companies surveyed were investing in this tack, with such virtualization software installed at 15%.

But capital investment is not on a resurgence. Only 21% of companies said they were going to upgrade equipment in 2011, Longwell said.

And if there is any spending on devices, it's for the kind of mobile devices being deployed by fund firms to their workers to improve productivity. In effect, for a large swath of workers and managers, tablets and smartphones are likely to replace desktop or laptop computers altogether.

The sale of smartphones will top the sale of personal computers and laptop computers-combined-two years from now, according to Internet analyst Mary Meeker, speaking on behalf of Morgan Stanley at a Web 2.0 Summit in San Francisco.

Roughly 450 million smartphones will be sold in 2012, she estimates, and 650 million in 2013.

By contrast, approximately 325 million desktop and notebook computers will be sold this year-and about 260 million smartphones.

Next year, smartphone sales will hit roughly the same 325 million unit sales. But computers will hit 380 million or a bit more in unit sales.

It's the year after next that the smartphone tsunami really washes ashore, led right now by the ramp up of Apple's iPhones, iTouch and iPad devices. This is a ramp "the likes of which we haven't seen before,'' Meeker said.

This reached 120 million in unit sales over the course of 13 quarters, a little more than three years. MME